No Class Certification Against British Airways

No Class Certification Against British Airways

UK Court of Appeal Rejects Class Treatment of Claims Against British Airways


By Matthew L. Berde Esq. and Christine A. Fujita Esq.

Summary: On November 18, 2010, the U.K. Court of Appeal affirmed a lower court decision rejecting an attempt by a pair of plaintiffs to certify a U.S.-style class action against British Airways. See Emerald Supplies Ltd. v. British Airways PLC,[2010] The Court of Appeal's decision strikes a major blow to class action plaintiffs in the U.K. at the same time as the European Commission is ramping up its own efforts to develop a collective action procedure.

I. The High Court's Decision

The lawsuit was brought by Emerald Supplies (a flower importer), along with one other plaintiff. It alleged that BA had agreed to fix prices on air cargo services in violation of European and U.K. competition laws. Emerald asserted that it and its co-claimant were "direct or indirect purchasers of air freight services" from BA, and as such they were "representative of all other direct or indirect purchasers of air freight services from" BA. Emerald asserted that it and the putative class members were damaged by the price-fixing conduct because they (1) paid inflated prices for the services, (2) lost sales volume insofar as the inflated prices that they paid for air cargo services were passed on to their own customers, and (3) lost sales volume "as a result of brand damage." Emerald sought a declaration that BA's conduct was unlawful and that damages were "recoverable in principle from the Defendant."

Accordingly, Emerald sought to bring the claim as a representative action under Rule 19.6 of the U.K.'s Civil Practice Rules ("CRP 19.6"). The Rule provides that "(1) where more than one person has the same interest in a claim[,] (a) the claim may be begun; or (b) the court may order that the claim be continued, by or against one or more of the persons who have the same interest as representatives of any other persons who have that interest." BA subsequently applied to strike out the representative element of Emerald's claim, arguing that the co-claimants did not have the "same interests" as the putative class members, and, even if they did have the same interests, that the co-claimants could not properly represent the class.

On April 8, 2009, the Chancery Division of the High Court granted BA's application to strike. See Emerald Supplies Ltd. & Anr. v. British Airways PLC, [2009] EWHC 741 (Ch). Beginning with "the rule itself," the Chancellor articulated two principles for analyzing Rule 19.6: First, while the rule necessarily contemplates multi-person actions and imposes no limit on "the number of persons in the class to be represented," "the more extensive the class the more clearly" should the relevant interest be defined. Second, and building on the first point, the "relevant interest" shared among class members must exist both "at the time that judgment is given" and "at the time the claim is begun." The claimants and the class must maintain "'a common interest and a common grievance' and 'the relief sought must in its nature be beneficial to all'" class members throughout the litigation, even though the membership of the class "may fluctuate."

Applying these principles, the Chancellor concluded that "Rule 19.6 does not authorize these claimants to represent the class described in the particulars of the claim." Emerald's complaint sought relief on behalf of all direct and indirect purchasers who paid inflated prices. This formulation rendered it "impossible to say of any given person that he was a member of the class at the time the claim form was issued." That is, a judgment would have to be reached on which prices were unlawfully inflated before it could be known who belonged in the class. This plainly contravened Rule 19.6's requirement that the same interest exist among class members throughout the litigation.

Even if the class did share the same interest, the Chancellor reasoned "the relief sought in the action...[was]...not equally beneficial for all class members." Because damages were a necessary element of the claim, the availability of the pass-on defense created inherent conflicts within the class. While direct purchasers would logically argue that they did not pass on any costs to their own customers, those customers-as indirect purchasers-would claim just the opposite. As the Chancellor explained, "[w]hether or not an individual member of the class can establish that necessary ingredient [i.e., damages] will depend on where in the chain of distribution he came and who if anyone in that chain had absorbed or passed on the alleged inflated price." Nor would certifying a liability-only class solve the problem. Excluding damages "would mean that it would be impossible to ascertain the members of the class even when judgment had been given" because it would still be "necessary to determine where in the chain of distribution the loss had fallen in whole or in part."

Finally, the Chancellor opined that Rule 19.6, as currently drafted, did not permit the type of class action sought by the claimants. The effect of the pass on defense was a problem "better dealt with by Parliament than by stretching the use of Rule 19.6 to accommodate cases such as this." And, even though Rule 19.6's procedures may have made the proceedings more convenient, that "overriding objective" should not control interpretation of the Rule. Rather, the opt-in procedures authorized by the Group Litigation Rule (Rule 19.11) could adequately address this issue.

Emerald appealed the decision. While the appeal was pending, the European Commission fined BA and ten other airlines a combined total of €799 million for their role in the air cargo cartel. (The U.S. Department of Justice has also levied roughly $1.7 billion in fines on airlines who pled guilty to criminal violations of the Sherman Act, including a $300 million fine paid by BA in 2007.)

II. The Court of Appeal's Decision...

 

Matthew Berde is an associate in the San Francisco office of Gibson, Dunn & Crutcher. He currently practices in the firm's Litigation Department. Mr. Berde received his J.D. from The University of Virginia School of Law in 2008, where he was elected to the Order of the Coif and served as Executive Editor of the Virginia Tax Review. He received his B.A. in History and a minor in Economics from Northwestern University in 2000.

Christine Fujita is an associate in the San Francisco office of Gibson, Dunn & Crutcher. She currently practices in the firm's Litigation Department. Prior to joining Gibson, Dunn & Crutcher, Ms. Fujita served as a law clerk for Chief Judge Irma Gonzalez of the U.S. District Court, Southern District of California. She received her J.D. from the University of California, Berkeley School of Law in 2009, where she was an Executive Editor of the California Law Review and a member of the Order of the Coif. In 2004, Ms. Fujita received a Bachelor of Arts degree in Journalism from the University of Nevada, Reno.

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British Airways Photo: Christopher Parypa / Shutterstock.com